DOHA: A gradually recovering global economy will support continued stable credit quality of the world’s sovereigns in 2015, says Moody’s Investors Service in its annual Global Sovereign Outlook, published on Tuesday. However, Moody’s sees four risks on the horizon that could interrupt growth and undermine sovereign credit worthiness across the globe.
Moody’s report, entitled “2015 Outlook: Global Sovereigns,” notes the principal risks to sovereign creditworthiness across the globe are the possibility of confidence shocks from the expected rise in US interest rates, especially in the case of a disorderly market reaction, the impact of lower growth in China and the euro area, the overhang of geopolitical risks, and reform fatigue.
On the positive side, global GDP growth is likely to continue at a steady pace in 2015, though at lower levels than before the crisis. For the MENA region, strengthening US growth should imply positive economic conditions for sovereigns with trade links to the US economy, though the normalization of US monetary policy also poses risks to those countries with currency pegs to the US dollar, should market participants come to fear that the process will be a disorderly one, says Moody’s.
“Turmoil in the Middle East will continue to impact investor confidence in the affected countries and neighbouring regions, though we expect that the impact on sovereign creditworthiness will continue to be limited to those governments in closest proximity to the crisis in Syria and Iraq, unless the conflict significantly escalates,” says Tom Byrne, Senior Vice President in Moody’s Sovereign Risk Group.
While Moody’s maintains negative outlooks on Lebanon (B1), Tunisia (Ba3) and Bahrain (Baa2), which have marked deteriorations in public finances in response to social unrest, other countries have proven more resilient, as illustrated by Moody’s change of Egypt’s outlook to stable from negative in October. The ratings of both Jordan (B1) and Morocco (Ba1) are also stable, with their government budgets set to benefit from subsidy reforms. In addition, political stability sets the scene for an improvement in growth and government finances for Egypt, Morocco and Tunisia.
Moody’s notes that the oil-exporting countries of the Gulf Cooperation Council (ratings range from A1 to Aa2, with stable outlooks) in 2014 have continued to register large fiscal surpluses, accumulate offshore assets, and maintain low government debt levels. The rating agency expects the combination of the recent decline in global oil prices and rising fiscal breakeven oil prices to only dent their fiscal buffers modestly in 2015.
Another major trend that could affect global growth is the continued economic slowdown in China, with growth expected at between 6.5 percent and 7.5 percent in Moody’s baseline scenario. A steeper-than-expected slowdown could negatively impact sovereigns with heavy reliance on oil exports to China, such as Oman, Saudi Arabia and Kuwait.
The Peninsula
